Initial claims for unemployment insurance soared to 3.28 million for the week ending March 21, dwarfing the previous high of 695,000 in October 1982 (see chart). The four-week average came in at 998,250 versus 232,500 in the prior week. The unprecedented flood in claims is likely just the first wave in a tsunami of negative economic statistics that will reflect the impact of the COVID-19 outbreak.
According to the Employment and Training Administration within the Department of Labor, “During the week ending March 21, the extraordinary increase in initial claims are due to the impacts of the COVID-19 virus. Nearly every state providing comments cited the COVID-19 virus impacts. States continued to cite services industries broadly, particularly accommodation and food services. Additional industries heavily cited for the increases included the health care and social assistance, arts, entertainment and recreation, transportation and warehousing, and manufacturing industries.”
A more complete picture of the labor market will come with the release of the March Employment Situation report on Friday, April 3. The range of estimates for private payrolls include a 60,000 gain on the high end and a loss of 660,000 on the low end. Gains in government employment may offset a small portion of the weakness, leaving total nonfarm payroll estimates at an 80,000 gain on the high end and a 700,000 loss on the low end. The full effects of the surge in layoffs may not be reflected in the March employment report as the survey was conducted before the March 21 surge in layoffs.
Initial claims are likely to be just the tip of the iceberg when it comes to the effects of the COVID-19 outbreak distorting economic activity. Early low-end estimates for real gross domestic product include drops of 6 percent for first quarter and 25 percent for the second quarter. Expect extraordinarily weak economic reports over the next several months.